Part Four in a Four-Part Series
Our story thus far: In the beginning, telcos ruled a world of their own making, riding high. Tech emerged from the sidelines and jumped on for the Internet ride, which suited the carriers; they made even more money, and no one stepped on their toes. Tech made plenty of money too, but stayed in tune with innovations that could one day edge out the carriers. Telcos, realizing that these high-paying customers would happily cut them loose, aimed to fortify their revenues. And so tech and the telcos watched their comfortable synergy slip away, and quietly backed into war. In this last of a four-part series we’ll look at where the hostilities are heading, and how the mobile ecosystem could be forever changed.
Tech Goes on the Attack
Tech giants like Google and Facebook still rely on telco giants like Verizon and AT&T to serve their sites, apps, and ads to consumers. But tech is investing deeply in home-grown systems that could make telcos irrelevant. Google, for instance, has developed its own fiber optic broadband Internet service, Google Fiber, providing “super-fast” downloads, 220 TV channels, and home phone service. Then there’s Google Fi, a wireless network that lets Google connect users to the strongest signal available by reselling access to 4G LTE networks from Sprint and T-Mobile.
Facebook joins the battle with its ambitious Telco Infra Project (TIP), an open-source hardware and software platform it’s developing with Intel and Nokia (and even a few telcos). TIP uses a new modular design to get networks up and running more quickly and easily. There are signs that even Amazon is weighing the value of getting into the ISP business to free itself from dependence on the telcos.
The major tech companies have built other routes to bypass the carriers: hosting their own services. A trio of new mobile publishing formats—Apple News, Facebook Instant Articles, and Google AMP, respectively—dramatically speed up page loads over the mobile web, pleasing legions of mobile users. Not only can users view content within their social networks much faster, but overall mobile performance is optimized as well, improving the entire user experience. More significantly, these independent infrastructures and servers keep users on the tech platforms, giving the companies total control over their sprawling and profitable advertising networks. Publishers on these platforms benefit, too—more users are exposed to their content, and it’s all managed through a central control point, maximizing monetization.
Telcos Raise Their Defenses
Of course telcos aren’t helpless against these maneuvers. They’ve formed a two-pronged line of defense: their own mobile advertising, and ad blockers to thwart the attackers. Telcos control vast stores of first-party user data, ripe with potential for precision targeting. As LiveIntent CEO Matt Keiser tells eMarketer, “Everyone is starting to realize that they need data to craft identities and transition advertising from a desktop world to a mobile-first world.” Telcos have that data at their command.
Blocking ads at a carrier’s network level might not be as promising. Shine, an Israeli company, reportedly has sold ad-blocking technology to a roster of European carriers. But the opposition is gathering force, and it may not be an easy win. “This is incredibly harmful,” net neutrality advocate Josh Levy says in a Wired interview. “Ads are content and service providers should not be blocking any kind of content. Full stop.”
Fighting Back with Mergers
All’s fair in the art of war: If fire power is lacking, just buy more. Telcos have embraced this tactic, acquiring tech companies to instantly add quality content to their arsenals. “Mobile operators are starting to assert their ownership of the customer, and you can expect to see more of them buy into the space,” Peter Globokar says in The Drum.
Verizon bought AOL in 2015 for its sports, entertainment, and news content, plus more content from subsidiaries like TechCrunch and Huffington Post. Verizon is now finalizing its merger with Yahoo, counting on Yahoo’s high-traffic news, finance, and sports channels to shore up the carrier’s “reach, traffic, and ad revenue.”
When AT&T acquired DirecTV in 2015 it became one of the largest mobile networks in the US. This year it will acquire Time Warner, which includes HBO, CNN, and TBS, among other properties. AT&T promises users programming optimized for mobile viewing and “more relevant advertising in ad-supported video services.”
Mergers are a convenient shortcut to controlling content, the first step in closing the loop for telcos: once they control content, telcos can serve their own advertising and capture greater market share. Ultimately an entirely new force could take shape, a hybrid of tech and telcos capable of delivering the ideal ad platform—and raking in more money than ever before.
The worldwide popularity of mobile devices pushed the global mobile advertising market to $100 billion in 2016, jumping from $67 billion in 2015 (and from $19 billion, looking back to 2013). Tech and telcos are hungry for their share. Will tech cross a line to become the dominant ISP? Will peddling user information help telcos bankroll mobile advertising battles? Will more mergers in pursuit of content change the carriers’ core business? Will tech ever grow powerful enough to acquire the telcos? This conflict may grind on for years before the answers are clear. For now the future is cloaked in the fog of war.